Monday, January 14, 2013

DOWN TO THE DOCTOR'S: The land of the sinking sun

Libertarianz leader Richard McGrath takes the new Japanese Prime Minister into his clinic for a once-over.

Japan Pumps More Money Into Economy - The Japanese government has a bold new blueprint for the economy that will create over half a million jobs. At least, that’s what the headlines tell us.

What a cunning plan! It's never been tried anywhere before. You see, they've come up with this great idea where if you fire up the printing presses and make lots of money tokens, everyone will be richer. There will be a vicious cycle of spending and an upwardly spiralling standard of living, an unstoppable chain reaction of wealth creation until the whole Japanese population are living like the Sultan of Brunei.

I hate to break it to the Japanese government but this won't be the first time governments have tried to "stimulate" their country's economy by producing money tokens. President Obama tried it with QE1 and QE2 - and is trying it on an ongoing and indefinite basis with QE3. Any recovery the United States makes will come at the expense of a collapsing U.S. dollar, and eventually the nightmarish prospect (for some) of the greenback being supplanted as the default world currency.

In fact, it’s not even the first time the Japanese government has tried to “stimulate” their economy with phoney money and phoney “stimulus.” They’ve been doing it for two decades since their economy first fell into a hole, and the result of their “stimulus” has only been to make matters worse. In fact, it’s not even the first time this Prime Minister has tried it: in his previous (short) term as PM he kept the printing presses going, as it was held by his economic advisers a good PM should.

Much of these new Japanese money tokens however will be used on rebuilding after the tsunami and earthquakes-- which wouldn't be an issue if all property was privately owned and responsibility for insurance lay with owners; on 'support for regional economies' (read pork-barrelling and cronyism); and on 'investment’ in education (why not let the private sector, and the pupils and their parents, provide their own solutions to educational demand in the affected areas?) and on social security (if you can possibly call that “investment”--probably needed for those who have paid taxes all their lives and are thus reliant on a government pension, especially once the govt chews through their savings, but what about making a start to liberalising Japan’s tumescent welfare system by stopping payments for people who don't work?).

The Japanese government, by the way, has already foisted upon its people the world's highest debt relative to GDP (at 236% in 2012) and the second highest absolute debt in dollar terms. Interest payments alone, even at the historically-low current rates, take up around half of the government’s current tax receipts. The IMF can see no option other than raising the consumption tax to relieve Japan of some of its debt, but even this is much to little and far too late. And from a Keynesian point of view, won't that tend to depress so-called “aggregate demand”? Oh dear!

The classical liberal approach to the mess in Japan would be to stop government from intervening in the economy altogether—let the market sort out its delinquent traders, allow them to be liquidated and their assets redeployed into more profitable ventures. Let prices fall to a sustainable level so folk can make use of the little real money they have left, and businesses can get going again properly on sustainable and more profitable footing.

Instead of which, the government’s 'support for regional economies' will prop up failed enterprises and allow them to continue to operate with an unfair advantage over their competitors (about which, when it happens in NZ, the Anti-Commerce Commission does nothing). And prices will continue to be propped up, putting them above what they need to be to make businesses pay.

In any case, the state should not need to print money—private banks are quite capable of doing this, as they do in Hong Kong and other jurisdictions where they produce real (asset-backed) money. Printing money tokens however that debase the currency and destroy the livelihoods of those on fixed incomes should be an offence worthy of imprisonment for any politician that tried it, not the basis for knighthoods and other rewards.